Economy

Oil is Kuwait's main source of revenue and its only abundant resource. Kuwaiti oil reserves are among the largest in the world. Revenues from oil account for over 95 percent of country's total annual budget. In addition to oil production, other industries include petrochemicals, desalination plants, food processing, fisheries, building materials, and salt production.

Kuwait's economy suffered during the Persian Gulf War. The infrastructure of the country was damaged during the occupation by the Iraqi military, and recovery from the Iraqi invasion was hampered not only by the damage to its oil fields but also by huge welfare subsidies and an overstaffed public service sector. In 1995 the World Bank recommended that Kuwait terminate the state subsidies for water, gas, and telephone services. There was opposition to this recommendation, but the government put the reforms in place. As a result the Kuwaiti economy rebounded, and in 1996 Kuwait became the first state to receive an "A" rating from the International Banking Credit Association. This organization evaluates countries for prospective lenders on the basis of short - and long-term risks.

Following the governmental reforms and its strong credit rat-

Ings, Kuwait entered the twenty-first century with optimism. In early 2001, oil prices were high and it seemed that this would bring prosperity. However, demand for Kuwait's oil dropped in the global economic downturn that followed terrorist attacks in the United States in September, 2001. Together with the emir's health problems, the economic slump placed Kuwait in a much more fragile position.

The Kuwaitis were also uncertain about the consequences of a possible American invasion of Iraq in the years that followed the terrorist attack on the United States. Although Iraq was a proven enemy and the United States was Kuwait's most important ally, the Kuwaiti government was reluctant to endorse an invasion of another Muslim nation and concerned about the disorder that could follow from another major war in the region. In September, 2002, Kuwait announced that it opposed military action against Iraq by the United States alone. However, Kuwait declared that it would allow the American armed forces to invade Iraq from Kuwait if this were approved by the United Nations. On October 2, 2002, American and Kuwaiti troops began training together, but both of these nations denied that this was a preparation for involvement in Iraq.

Masoud Kheirabadi Updated by the Editors